Knight Ridder Newspapers

NEW YORK – U.S. stocks closed sharply lower Friday, with the Dow Jones Industrial Average turning negative for 2006 and posting its biggest one-day loss since March 2003, after oil prices hit a four-month high and General Electric Co. and Citigroup Inc. disappointed with their fourth-quarter earnings.

The Dow closed down 213 points at 10667.39, its lowest level in two months. The blue-chip index is down 50 points from its 2005 close and is 2.7 percent lower on the week.

The Nasdaq Composite Index slumped 54 points, or 2.4 percent, to 2247, the worst one-day performance for the tech-rich index since September 2003. The Nasdaq is down 3 percent on the week.

The S&P 500 Index dropped 23 points to 1261 and is down 2 percent on the week.

“The market was overdue for a short-term pullback and a combination of rising energy prices and some high-profile earnings misses have provided the catalyst,” said Michael Sheldon, chief market strategist at Spencer Clarke LLC.

“Over the short term, it will be important for the Dow to hold above support around 10700,” Sheldon added. “If that fails to hold, the next level of support looks to be around 10600, representing a roughly 50 percent retracement of the October 2005-January 2006 market advance.”

Sheldon notes that the last time oil prices were at current levels, the Dow was down around the 10400 level.

Tracking the broader market for equities, decliners had a more than 2 to 1 advantage over advancers on the New York Stock Exchange and the Nasdaq. Volume was 2.1 billion on the Big Board and 2.4 billion on the Nasdaq.

By sector, semiconductors ($SOX) and airlines ($XAL) were two areas of the market posting the biggest declines. Networkers ($NWX), computer hardware ($GHA) and software stocks ($GSO) were also sharply lower.

Energy ($XOI) and oil services ($OSX) were notable gainers, helped by the strength in oil prices.

A fresh rise in oil prices continued to unsettle investors as they worry that higher energy costs will eventually dampen future earnings growth.

Crude futures surged past $68 a barrel as political tensions surrounding oil-rich Iran and Nigeria raise concern exports from these countries could be disrupted, leading to supply constraints. Fallout from Thursday’s terror threat from al-Qaida lent further support.

The benchmark February contract closed up $1.52, or 2.3 percent, at $68.35 a barrel in New York trading, and gained 6.9 percent on the week. March becomes the lead contract at the close of Friday’s session.

On the currency markets, the dollar was mixed. The euro was up 0.1 percent at $1.2099. Against the Japanese yen, the greenback fell 0.1 percent to 115.37.

Gold futures ended lower on the day and slightly lower on the week. The precious metal still remains at elevated levels, benefiting from its reputation as a safe-haven investment in times of rising political tensions. The volatility in energy prices has also been drawing investors to gold.

Gold for February delivery was down $5 at $554 an ounce, off a morning high of $568.50. On the week, it dipped 0.5 percent.

Meanwhile, bonds edged higher as the weakness in the stock market sent some investors looking for safer investments in fixed-income instruments. A stronger-than-expected consumer-sentiment survey also left some investors wondering whether the Federal Reserve might not be pushed to raise interest rates higher over a longer period to keep the economy from overheating.

The benchmark 10-year Treasury note was last up 5/32 at 101 5/32 with its yield at 4.35 percent.

In a light day on the data front, consumer sentiment improved in January, according to researchers at the University of Michigan. The consumer-sentiment index rose to 93.4 in January from 91.5 in December, above the consensus forecast of Wall Street economists calling for a reading of 92.6.

Shares of General Electric (GE) slumped to a three-month low, down almost 4 percent to $33.37 after the industrial conglomerate’s quarterly revenue fell shy of analyst expectations, but an upward revision to the bottom end of its 2006 outlook helped to put a floor on losses.

Separately, GE and Hitachi (HIT) are planning to jointly bid for nuclear-technology group Westinghouse, the U.S. unit of British government-owned British Nuclear Fuels, The Wall Street Journal reported.

Citigroup (C), another Dow component, fell 4.7 percent to $45.69 after the banking and financial-services giant posted earnings from continuing operations that missed Wall Street estimates. The bank noted a challenging interest-rate environment and competitive pricing conditions during the December quarter.

As for another earnings report of note, shares of Motorola Inc. (MOT) fell 7.7 percent to $22.48 as forecast-beating fourth-quarter earnings were offset by disappointment among some investors that the maker of mobile phones didn’t raise its financial outlook.

Also in the headlines, Google Inc. (GOOG) shares briefly fell below $400 for the first time in nearly two months after it said late Thursday it will fight an attempt by the Bush administration to force the company to turn over to the Justice Department information about what its users are searching for on the Internet. The stock ended down 8.5 percent at $399.46.

Ford Motor Co. (F) was in focus on a media report that it may cut 25,000 jobs or more over four years in a bid to stem North American losses. Details are expected on Monday. The carmaker’s stock fell 3.9 percent to $7.90.

On the deal front, groceries and drugstore group Albertson’s Inc. (ABS) said it has received an offer from a consortium for the purchase of the entire company. The stock was up 1 percent at $24.11.

Also, diversified industrial group Danaher Corp. (DHR) said it has agreed to buy U.K. company First Technology for about $634 million, topping an offer from Honeywell International (HON). Danaher’s shares closed down 2.3 percent at $54.35.

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